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Minority Borrowers Face Higher-Cost Mortgages

Editorial By REX FOWLER

January 29, 2008

Lots of attention has been given to the crisis in the subprime mortgage industry over the last year. But the media has largely missed another dark side of the story: who the subprime lenders and brokers have been specifically targeting for these loans.

Research conducted by a number of watchdog groups across the country has told us a lot about which communities are really bearing the brunt of these high-cost loans. Recently, the National Community Reinvestment Coalition conducted an extensive study of mortgage data for more than 100 major metropolitan areas in the U.S., including Hartford. What the coalition found was startling.

In Hartford, minority borrowers were much more likely to have a high-cost mortgage than white households. This was true regardless of income. In fact, among African American borrowers in Hartford, the disparity was actually greater for middle-income households than for low-income households. The coalition's analysis revealed that middle-income African American borrowers in Hartford are 2.9 times more likely to receive a high-cost loan than a middle-income white borrower. Low-income African Americans buying or refinancing a home in Hartford are 2.1 times more likely to get a high-cost loan than a low-income white borrower in the capital city.

A more detailed look at neighborhood data indicates that in recent years, high-cost loans made up more than half of the mortgages provided to homeowners in two of the city's North End neighborhoods (Clay Arsenal and Northeast). These neighborhoods are Hartford's poorest, and consist primarily of African American residents (by contrast, in Hartford's West End, only about 15 percent of mortgages were classified as high cost). And the research indicates that Hispanic borrowers in Hartford don't fare much better.

Overall, of 116 major metro areas studied by the coalition, Hartford was the 11th worst in the country for racial disparities in high-cost lending. And with approximately 80 percent of Hartford's population made up of black and Hispanic households, the precipitous jump in foreclosure signs in our neighborhoods should come as no surprise.

Indeed, history seems to be repeating itself. Throughout much of the previous century, banks made mortgage lending decisions using a detailed set of maps that had been developed in the 1930s by the federal government, which offered guarantees for the loans. These maps divided every U.S. metropolitan area into four color-coded districts, indicating where the most attractive mortgage loans were to be made (neighborhoods colored blue on the maps) and where banks should simply avoid making mortgages altogether (neighborhoods colored in red).

But the colors assigned to these neighborhoods were determined largely by the color of the skin of that neighborhood's residents. Neighborhoods like Hartford's North End, with a significant population of black residents, were colored in red. This meant few residents could even hope to buy their own homes, starting a spiral of neighborhood disinvestment that continued for decades. This practice of "redlining" — using race as a basis for lending decisions — was outlawed in 1968 with passage of the Fair Housing Act, part of the Civil Rights Act signed one week after the assassination of Martin Luther King Jr.

Rex Fowler is executive director of the Hartford Community Loan Fund and a resident of Hartford's Northeast neighborhood.